Influence of transnational economic alliances on the IFRS convergence decision in India—Institutional perspectives

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Krishnan, Sarada R (2018) Influence of transnational economic alliances on the IFRS convergence decision in India—Institutional perspectives. Accounting Forum, 42 (4). pp. 309-327. ISSN 0155-9982

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Influence of Transnational Economic Alliances on the IFRS

Convergence Decision in India – Institutional Perspectives

Highlights

Decision-making for IFRS convergence within nation states significantly

influenced by traditional trade and economic alliances.

Influences exerted through transnational policy networks between

institutional fields

Impact of influences determined by power balance between local and

transnational actors embedded in different institutional fields.

Indirect effect of US delays in IFRS convergence on India as a result of

cross country economic ties.

Abstract

This study contributes to the literature on global governance by highlighting the

importance of not losing sight of the nation state as an important player in the

transnational governance arena. Specifically, literature on global (accounting)

regulation devotes a great deal of attention to the roles of organisations and agencies

with transnational remit (such as global standard setters, donor agencies) while

often downplaying the significant impacts of the more traditional cross- country

links forged through economic relationships and resource dependencies between

national and transnational institutional fields. This was specially noted in the case

of the indirect influences of the US’s decision to delay IFRS convergence. While

being interpreted as an indirect source of influence, such a decision played a very

significant role on the convergence negotiations in India. The study shows how the

US influence was channelled through Japan with which India has significant trade

and economic relations and, most importantly, holds a joint forum specifically to

discuss convergence issues. The consequences of India’s links with countries such

as US and Japan in the decision-making process provide a vivid indication of the

important roles of cross-governmental relationships in the global governance arena,

and also question the position of transnational organisations as pervasive powers in

such governance. The study’s findings clearly demonstrate that the pursuit of full

IFRS convergence strongly favoured by the transnational forces was invariably

challenged in the Indian context by the influences of powerful nation states

advocating a more cautious approach.

Key words

IFRS convergence, decision-making, role of nation states, institutional fields,

transnational networks, India, resource dependency.

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1. Introduction

Regardless of severe criticisms on its international applicability, IFRS has been

adopted fully or partially by approximately 120 countries (Sharma, Joshi & Kansal,

2017). Countries such as Japan, Singapore, Indonesia and Thailand are yet to

finalise their convergence decisions. Although India committed itself to achieve

IFRS convergence by 2011, the convergence decision-making process has been

marked by much public political debate with the consequence that despite two

further deadlines being announced by the state, the process had suffered severe

delay. The official stance of the state in favour of convergence had been

contradicted in practice by repeated failures to translate this policy into action. This

paper aims to explore the influence of India’s trade and economic alliances in

delaying its convergence decision. The study uses concepts of transnational policy

networks, resource dependencies and institutional theory to analyse this context.

Analysing the convergence decisions of countries undertaking accounting reforms

in the light of significant trade and economic alliances, especially with powerful

countries such as the US and Japan, reveals additional dynamics of divergence

between rationales and reasons cited by nation-states in making such decisions

(Ramanna & Sletten, 2009). Such analysis adds to our understanding of the

relationship between power, resource dependency and institutional forces that

shape the accounting regulatory arena (Crawford, Ferguson, Helliar & Power,

2014; Bengtsson, 2011). The significance of trade and economic alliances in

shaping convergence decisions have been previously explored in developed

countries such as Australia, New Zealand, European Union (EU) and Canada

(Nobes & Parker, 2010; Zeff & Nobes, 2010; Ramanna, 2012; Andersson, Haslam,

Tsitsianis, Katechos, & Hoinaru, 2016). However, studies exploring the influences

of such alliances in shaping convergence decisions in developing countries are

limited (Mir & Rahman, 2005). Since a large number of countries that have

converged with IFRS are developing countries (IFRS, 2017), exploring the role of

these influences on convergence decisions in these countries would add to our

understanding of the on-going accounting convergence drive and the different

outcomes of such convergence (Weaver & Woods ,2015; Ghio & Verona, 2015;

Sharma, Joshi & Kansal, 2017).

India is one of the largest developing economies in the world; sixth largest in terms

of nominal Gross Domestic Product (GDP) and third largest in terms of purchasing

power parity (World Bank, 2017). Recently the World Bank (WB) ranked India as

the fastest growing economy in the world (World Bank, 2017). Having been

classified as a major Newly Industrialised Country1 (NIC) by the International

Monetary Fund (IMF) and reported to be a transition economy by the WB (World

Bank, 2013), the Indian socio-political and economic context often displays

characteristics of both developed and developing countries (Boddin, 2016). Hence

the findings of this paper are relevant to not just developing countries but could

also be applicable to some extent in the context of developed countries. The

decision-making process for IFRS convergence in India commenced with the state

setting a deadline of 2011 to achieve convergence. This deadline was not met and

1 The term NIC is used for developing countries that have surpassed most other developing countries in economic growth but have not yet achieved the status of a developed country.

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during the course of the next 5 years, two other deadlines of 2013 and 2015 were

set which were also not met (Seth, 2016). A reliable news daily reported that Indian

companies have started to implement the IFRS converged Indian accounting

standards (Ind AS) from June 2016 onwards (Seth, 2016).The latest update on IFRS

website2, regarding the convergence process in India as of July 2018, indicates that

India has adopted the ‘substantially converged’ Ind AS and not officially adopted

IFRS.

The discrepancy between rhetorical policy and practice in India was to some extent

explained by local resistance to immediate convergence mostly manifested in the

form of industrial lobbying due to legislative and taxation issues. However, the role

of transnational influences in the process remains to be fully explored. Research

has shown how donor agencies and international financial institutions (IFIs)

coercively seek to bring about standardisation, especially in developing countries.

Literature suggests that substantial financial dependence on foreign aid from IFIs

such as the WB implies that the state was no longer the sole orchestrator of reform

policies (Adhikari & Mellemvik, 2010). Financial dependence on IFIs meant that

accountability, in terms of efficient use of resources, played an important role in

donor-recipient relationships, to the extent that most developing countries were not

left with much choice (Adhikari & Mellemvik, 2010; Mantzari, Sigalas & Hines,

2017; Irvine, 2008; Neu, Ocampo, Garica & Zepeda, 2002; Mir & Rahman, 2005).

In addition to the role of IFI’s, extant literature also provides some insights into

issues such as the role of mimetic influences on countries in order to appear

legitimate and comparable to ‘world leaders’ (Touron, 2005, pp. 886), socio-

political influences on the development and convergence of IFRS (Chua & Taylor,

2008) and the role of multiple socio-cultural and geo-political factors such as

religion and colonial history (Rodrigues & Craig, 2007).Specifically, institutional

perspectives such as decoupling have been used to analyse issues such as symbolic

versus substantial adoption of IFRS (Rodrigues & Craig, 2007) as well as normative

and mimetic sources of influences on convergence decisions such as auditors and

industry counterparts of companies (Touron, 2005). These studies challenge the

economic rationales cited by supporters of IFRS convergence and highlight the

significant role of multiple actors such as regulatory authorities and MNCs in

shaping the drive for convergence. They provide a strong analytical premise

through different forms of institutional frameworks which could be applied to

analyse significant geo-political alliances between nation-states. This study

contributes to extant literature by identifying transnational influences through

regional and trade alliances and analysing the role played by such influences in

counter-balancing influences from IFIs and other transnational forums promoting

convergence.

Extant literature on the role of transnational influences channelled through

traditional cross-country relations mainly focuses on developed countries such as

Australia, New Zealand, UK, US and Europe (Nobes & Parker, 2010; Nobes, 2013;

Hail, Luez & Wysocki, 2010; Zeff & Nobes, 2010). These studies while providing

useful insights into the effect of such relations on accounting standards and

practices, do not fully explore the decision-making process through which the

2 http://www.ifrs.org/use-around-the-world/use-of-ifrs-standards-by-jurisdiction/india/

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influence of such cross-country trade and economic relations are translated into

financial reporting decisions, especially in developing countries (Humphrey &

Samsonova-Taddei, 2015). They do, however, discuss a wide variety of sources of

influence on financial reporting practices such as inter-dependence between

countries through political and economic relations, the role of state and mutual

influences on legal systems (Nobes & Parker, 2010). However, these influences

would differ in the way they manifest themselves in the context of IFRS

convergence in developing countries (Samsonova, 2009; Ding, Jeanjean &

Stolowy, 2007). Insights into the manifestations of these issues as carriers of cross-

country trade and economic relations in developing countries as part of a wider

transnational policy network would provide deeper insights into the International

Accounting Standard Board’s (IASB) ongoing convergence movement.

Extant literature on convergence rarely answers questions such as ‘how do the

geopolitical trade and economic alliances between countries shape the national

decision for IFRS convergence? One exception to this is a study conducted by

Ramanna & Sletten, (2014) who found that trade and economic ties do play an

important role in convergence decisions. The authors note,

Consistent with the presence of network effects in IFRS adoption, we find that

a country is more likely to adopt IFRS if its trade partners or countries within

in its geographical region are IFRS adopters (pp. 2).

The authors further highlight the need for studies that analyse the significance of

trade and economic alliances on convergence decisions as necessary to comprehend

the varying outcomes of IASB’s convergence drive.

Analysis of the influence of such alliances on the decision-making process in this

study is informed by an institutional analytical perspective focusing on the role of

institutional fields that occupy and operate in the regulatory decision-making arena

(Crawford et al., 2014; Arnold, 2005). Institutional fields have been considered

appropriate platforms of analysis to explore the struggles and negotiations that

occur between actors in a regulatory decision-making arena (Arnold, 2005). Djelic

& Sahlin (2009) further emphasise the role of institutional forces in shaping power

relations between actors involved in decision-making in accounting regulatory

arenas. In this context, few studies call for ‘sophisticated conceptions of power’

(Crawford et al., 2014, pp.305) and highlight the need to refrain from analysing

power relations between institutional fields through a pluralistic perspective based

on success achieved by actors in influencing the decision (Cooper & Robson, 2006;

Crawford et al., 2014). Furnari (2016) while discussing institutional changes makes

the following observation,

The vast majority of institutional studies have analyzed instances of

institutional change within a single institutional field, devoting less

systematic attention to the issue of how institutional change occurs

between multiple institutional fields (pp.553).

This paper draws on extant literature to analyse the influence of trade and economic

ties channelled through multiple institutional fields between nation states on power

dynamics in the accounting regulatory arena. It uses concepts of resource

dependency and exchanges to analyse these power dynamics in the accounting

regulatory arena.

5

The study contributes to the global governance scholarship by highlighting the

importance of not losing sight of the nation state as an important player in the

transnational governance arena. Specifically, literature on global (accounting)

regulation devotes a great deal of attention to the roles of organisations and agencies

with transnational remit (such as global standard setters, donor agencies) while

often downplaying the significant impacts of the more traditional cross- country

links forged through economic relationships and resource dependencies. This was

specially noted in the case of the indirect influences of the US’s decision to delay

IFRS convergence. Unraveling the means through which US’s decision affected

India’s move towards convergence makes a significant contribution to our

understanding of accounting policy decisions and its links to state policies on

transnational economic alliances. It adds to literature addressing policy makers in

accounting profession as well as state institutions that lead decision-making

processes for convergence. While being interpreted as an indirect source of

influence, such a decision played a very significant role on the convergence

negotiations in India. The study shows how the US influence was channelled

through Japan with which India has significant trade and economic relations and,

most importantly, holds a joint forum specifically to discuss convergence issues.

These negotiations were driven by policy makers operating from multiple

institutional fields representing the accounting practice, the state, regulatory

authorities and industry. Analysing these interactions and their impact on the

decision-making process for convergence has provided insights into policy-making

in accounting standardisation, evolution of national accounting practices as a result

of institutional influences of geo-political alliances and contributes to scholarship

on issues surrounding accounting convergence.

The consequences of India’s links with countries such as US and Japan in the

decision-making process provide a vivid indication of the important roles of cross-

governmental relationships in the global governance arena, and also question the

position of transnational organisations as pervasive powers in such governance. The

study’s findings clearly demonstrate that the pursuit of full IFRS convergence

strongly favoured by the transnational forces was invariably challenged in the

Indian context by the influences of powerful nation states advocating a more

cautious approach. It emphasizes that the representation of the accounting

standardisation drive as an independent and neutral power that harmonises

accounting practices fails to convey the increasing influence of powerful nation

states and the effect of geo-political alliances on the decision-making processes of

convergence across the globe. While contributing to literature on decision-making

on IFRS convergence, the findings of the study also address policy makers in

standard setting organisations such as IASB as well as policy makers in accounting

within developing countries.

2. Notion of IFRS Convergence in India – Background

In 1991 the government of India introduced several economic reforms in response

to severe balance of payments crisis. Free market principles were adopted to attract

international trade and create an open economy. This led to considerable dilution

of state control over the economy leading to an increase in Foreign Direct

Investments (FDIs). Over subsequent years the Indian economy witnessed a stable

growth in the FDIs which led to investor demands for financial statements prepared

according to IFRS. These investors were supported in their demands by some

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Indian companies that were either entering into joint ventures with foreign

companies or purchasing them. In 2007, the state and the Institute of Chartered

Accountants of India (ICAI) in response to these demands, made an announcement

of IFRS convergence by 2011 (Jain, 2011).

The ICAI initially supported full adoption but due to industrial lobbying decided

along with the state to alter its stance to convergence with differences (CG2). A

member from industry and professional bodies who was a participant in decision-

making groups stated,

“The professional bodies in India were very interested in complete adoption

of IFRS…. initially they virtually copied everything from IFRS. However,

the industrial sector was seriously hit by IFRIC 15 that had a very different accounting treatment for real estate companies…. IFRIC 12 also affected

many projects such as road transport projects, airport projects etc. through

implications on direct and indirect taxes…so they objected...” (CG2).

In its concept paper, the ICAI attempts to justify the differences between national

accounting standards and IFRS by providing the following definition of

convergence:

“to design and maintain national accounting standards in a way

that financial statements prepared in accordance with national

accounting standards draw unreserved statement of compliance

with IFRSs” (p.12).

Despite significant carve-outs in newly framed Ind AS, the ICAI has been quite

vocal in its claims of substantial convergence with the IFRS. Through its concept

paper the ICAI identifies and discusses the key issues that shaped the decision to

‘not adopt’ IFRS mainly due to locally embedded aspects (Kantayya, 2016;

ICAI, 2015). These issues include:

a) Maintaining consistence with legal and regulatory requirements - Some

examples of national accounting standards which are formulated to suit the legal requirements are AS 21 Consolidated Financial Statements, AS 25 Interim Financial Reporting and AS 31 Financial Instruments. In the case of AS 21, the definition of ‘control’ is based on requirements of Companies Act 1956 and hence is different from the definition provided in IAS 27 Consolidated and Separate Financial Statements. Similar differences based on legal requirements have been cited as examples in the case of the other two accounting standards as well (ICAI Concept Paper, 2007).

b) Economic factors related to the use of fair value - The key issue discussed under economic factors is the use of fair value approach by IFRS. The concept paper states that the markets in India do not possess the necessary dimensions to arrive at reliable fair values for various assets and liabilities (ICAI Concept Paper, 2007). This point has been validated by one of the interviewees from the industry:

7

“There is a dire need for developing professional elite services

such as valuation. There should be valuation standards in India

without which there will be no uniformity in the reports

presented and fair value system will be a failure” (IB5).

This indicated that the ICAI and the industry were all of the opinion that

India was not prepared to successfully implement the fair value system.

c) Inadequate level of preparedness of industry and conceptual differences

such as requirement to create provisions at an early stage under IAS 373

(ICAI, 2007).

The decision-making process for IFRS convergence in India has been particularly

intriguing due to controversial debates surrounding the issue as well as repeated

failures to meet targets of roadmaps and deadlines etched out by the state and the

ICAI. The enthusiasm for IFRS convergence displayed by the state and the ICAI at

global forums was not translated into actual progress. The country was not able to

meet the first deadline of 2011. The date set for convergence passed without any

explanations or public notifications of delay. In 2012, an emphatic reiteration of the

state’s intent to converge with IFRS by 2013 was conveyed through a statement

made by the Minister for Corporate Affairs & Power at a seminar,

“……we are determined to ensure that IFRS is implemented by April 1, 2013,” (Srivats, 2012).

Nevertheless, this second deadline was also evaded without any public

announcements or explanations. Following the second deadline, the ICAI prepared

a new roadmap for convergence in 2013 which proposed the implementation of Ind

AS by listed and unlisted companies worth more than US$ 78515755 (approx.)

starting from 1st April 2016. The roadmap proposed a deadline of 1st April 2018 for

insurance, banking and non-banking finance companies (MCA, 2015).

Debating the decision is not unusual amongst countries moving towards

convergence. However, it is unusual for a country to repeatedly announce

convergence deadlines followed by long periods of delays shrouded in mysterious

silence from the state. It was found that industrial lobbying was a key local factor

that led to the delays. Tax issues that could be addressed only through legislative

amendments by the state formed the central theme of industry resistance. It should

also be noted here that differences in the opinions of the ICAI and the IASB on

issues discussed in the concept paper, mainly arising due to differences in the legal

and economic environment of the country also acted as a significant channel of

resistance to immediate convergence with IFRS (Kantayya, 2016; ICAI, 2015).

3 The recognition of provision has been pointed as a difference using the examples of AS 29 and IAS 37 Constructive Obligation.

The requirements of IAS 37 stipulate the creation of provision on the basis of constructive obligation which would result in the recognition of provision at an early stage. The concept paper cites an example of restructuring of an enterprise where an early recognition of a provision would not be appropriate since a liability cannot be stated to be crystallised at such an early stage. The discussion of such conceptual differences in the paper reflects differences in the opinion of the ICAI with regard to the timing of recognising the provision and also the judgement of related determining factors.

8

Nonetheless, a deeper analysis of the Indian context suggests that transnational

influences may have also existed in the form of regional and global trade alliances.

Exploring the role of such alliances in causing repeated delays would contribute to

a greater understanding of the nuances that shape national convergence decisions

and the effect this has on associated countries and global standard setters.

3. Theoretical Framework

This paper follows the theoretical strategy of broadly defining transnational policy

networks and resource dependency in an attempt to capture as much of the

institutional role of these networks and resource relations, as possible.

3.1 Transnational Policy Networks: Institutional Fields of Regulatory Decision-

Making

Institutional dynamics of transnational regulatory networks and collaborations have

been researched through multiple perspectives (Djelic & Sahlin-Anderrson, 2006;

Djelic & Quack, 2010; Philips, Lawrence & Hardy, 2000). Transnational policy

networks that drive regulatory decision-making processes are comprised of a

variety of actors, both individual and institutional. However, a transnational

network is not a formal construction, that is, the actors do not come together

formally for the purpose of forming a network. These actors converge around a

common issue regarding which a decision is being made (Hood, Baldwin &

Rothstein, 2001; Suddaby, Cooper & Greenwood, 2007) while at the same time

often having divergent views and opinions. So converging around particular policy

issues provides such actors with opportunities to influence how such issues become

eventually resolved. Hence, the motivation that drives these actors to interact with

each other is to collectively exert influence on the decision. To influence a decision,

actors often join forces and establish relations with other actors who favour similar

policy opinions (Djelic & Sahlin-Andersson, 2006; Samsonova, 2009; Djelic &

Quack, 2010; Risse-Kappen, 1995). However, it would be misleading to think of

transnational networks as homogenous environments. Difference of opinion

between network participants is common.

Affiliations to multiple institutional fields could be one of the reasons for such

variances in opinions and interests of actors in transnational policy networks

(Philips et.al. 2000; Risse-Kappen; 1995). An institutional field is defined as a

social arena of actors belonging to a common institutionalised environment

characterised by the dissemination, production and reproduction of institutional

rules and resources (DiMaggio & Powell, 1983; Philips et.al. 2000). Actors

converging around a policy decision in a transnational network predominantly draw

upon ideas and priorities institutionalised in their domestic institutional fields

(Meyer & Rowan, 1991; Philips et.al. 2000). Institutional fields of powerful

countries in a transnational policy network appear to be more influential in terms

of determining the outcome of discussions that take place in such networks (Hardy

& Philips, 1998). The ongoing negotiations in decision-making often influences the

institutional fields of less powerful nation-states in the network. Thus the decision-

making process within transnational policy networks are influenced by national

institutional fields and vice-versa.

9

In the context of accounting regulatory decisions made by nation-states, some

dominant institutional fields exist in the forms of domestic structures constituted of

the state, society and polity (Risse-Kappen, 1991). Risse-Kappen (1995) while

analysing the impact of transnational networks on foreign policies of the state,

emphasised the significant role played by domestic structures. Differences in the

domestic structure, that is, organisational interlinkages between the state, the

society and the polity, have been stated to create variations in the impact of

transnational actors (Meyer, 1990; Rochon, 1988).

Institutional fields prevalent in a country could determine the accessibility of the

national political system to transnational actors such as IFIs and the requirements

for effective coalitions between actors to enable the successful exertion of influence

on national decisions (Risse-Kappen, 1991; Katzenstein, 1976). This implies that

the ability of transnational actors to access the national political system of a country

could depend on the position of the state vis-a-vis other non- state actors in the

country. An example of the significance of domestic institutional fields could be

the differences in the decision-making process for IFRS convergence in India and

Bangladesh (Ramanna, 2012). The contrasting policy impact of transnational actors

in the two countries is reflected through the quick and non-controversial decision

made by Bangladesh to go ahead with convergence under pressure from the WB

(Mir & Rahman, 2005) while India had been going through controversial delays

and debates in the decision-making process despite pressure from transnational

actors (Srivats, 2012). This however, does not imply that India is absolutely

independent of IFI’s. India’s resource dependencies on IFI’s are balanced by similar

if not equally consequential resource dependencies on local non-state actors as well

as other transnational regional actors whose stance on the convergence decision

was different from that of the IFIs.

3.2 Resource dependencies between institutional fields: Channels of power

Decision-making shaped through power disparities arising out of resource

dependencies between actors embedded in different institutional fields has been

widely discussed in theoretical literature (Guo & Acar, 2005; Burt, 1983; Pfeffer &

Salanick, 1978; Friedkin, 1986; Nolke, 2003; Risse, 2005; Djelic & Quack, 2010).

Casciaro & Piskorski (2005) explored resource dependencies by incorporating the

theoretical constructs of power imbalance and mutual dependence to the existing

resource dependency theory in the context of inter- organisational dependence and

relations. These ideas when combined with different levels of institutional

influences on decision-making processes help examine transnational networks in

the context of accounting regulation. Louma & Goodstein (1999) examine

institutional influences on decision-making processes at three levels or fields: a)

society including legislative influences b) industry level c) organisational level. In

the context of this study, this framework is adapted and integrated with resource

dependency ideas to explore domestic and transnational institutional fields that

characterise the society, polity and trading and economic networks. This helps

visualise the transnational policy network for convergence decision-making

process as a network constituted of several institutional fields that are interrelated

to each other through resource dependencies and exchanges. Differences in

resource capacities of these institutional fields lead to power disparities (Philips

et.al. 2000).

10

While extant literature on transnational regulatory regimes do focus on unequal

power dynamics of actors in transnational policy networks (Djelic & Sahlin-

Andersson, 2006; Mir &Rahman, 2005; Ramanna, 2012), such power inequities in

the accounting regulatory context have not been widely researched through

resource dependency perspectives (Casciori & Piskorski, 2005). Philips et.al (2000)

notes that power dynamics define the significant role played by rule and resources

of different institutional fields of actors in shaping decision-making processes on

policies. Powerful actors belonging to resource rich institutional fields involved in

transnational decision-making processes are able to favourably influence other

participants in the network (Hardy &Philips, 1998). This paper focuses on

exploring the role of resource dependencies or exchanges between institutional

fields as channels of power in transnational regulatory network.

Power imbalance between two actors is determined by the extent of mutual

dependence between their respective institutional fields (Casciaro & Piskorski,

2005; Guo & Acar, 2005; Philips et.al. 2005). This implies that the power equation

between these actors or institutions would alter if there is a change in the mutual

dependence over the course of time. It has often been observed that long- term

alliances or relationships between national and global actors do change with

changes in resource capacities of the socio-economic and political institutional

fields of nation-states. For example, the donor-recipient relationship between India

and the WB over the last two decades has witnessed a significant change with India

graduating fully from WB’s International Development Association (IDA)

assistance programme4 (IDA, 2016). This change in the extent of resource

dependence could determine the extent of influence that the WB could exert on

national decisions. While the powerful IFI was able to exert direct and dominating

influence on the national accounting decision of relatively more financially

dependent country such as Bangladesh (Mir & Rahman, 2005), it may not be

possible for WB to exert similar influence in India due to the changing socio-

economic developments which have altered the power equation between the two

actors. It is important to examine these features while studying the decision- making

process for convergence as they help to explain the source of influences on the

decision and also explain the reasons for power imbalance between actors in the

transnational arena (Risse- Kappen, 1995; Nolke, 2003).

Since transnational networks facilitate group decision-making processes across

national and transnational institutional fields (Nolke, 2003; Risse, 2005), these

networks are often characterised by power disparities (Haslam, Tsitsianis,

Anderrson & Yin, 2013). Two features of transnational policy networks that act as

sources of power disparities in the decision-making arena are resource

dependencies in relation to transnational agencies, and state/domestic institutional

structures (Djelic & Quack, 2010; Nolke, 2003). The exchange of resources in

transnational policy networks takes place through national and international

institutions. These resources could be financial resources, information resources or

technical aid for implementation of projects (Scholte, 2000; Keohane & Nye, 1989).

4 The IDA provides financial assistance to the world’s poorest countries. Countries graduating from IDA are those

that have made significant developments in terms of per capita income, creditworthiness, economic and political progress and no longer receive substantial funds under this scheme (IDA, 2016).

11

Specifically, these features revolve around the donor-recipient relationship that

exists between actors from different institutional fields in the decision- making

arena. Resource dependencies between national and international institutions affect

the on-going negotiations for terms of finalising the decision.

This is because recipient actors are dependent on donor actors for resources and this

places the latter in a relatively powerful position (Webb, 1991; Cooper, 1968). Such

a relationship acquires significance due to its power dimension and has a significant

impact on the decision-making process (Garret & Lange, 1995; Haggard &

Maxfield, 1996). And it is these institutions that determine the political influence

on the process. Hence resource interdependencies across institutional fields and

distribution of political capacities among the actors also create power disparities

that allows some actors to exert greater influence and significantly affect the

decision-making process. Figure 1 presents a framework that combines the concepts

of transnational policy networks constituted of actors from various institutional

fields, resource dependencies and power disparities.

Figure 1 Interconnected Institutional Fields of Transnational Regulatory

Networks

While the role of power in financial reporting decisions made by companies has

been explored (Mantzari et al, 2017), power disparities as sources of institutional

influences on actors making financial reporting decisions within countries have not

been as extensively researched. Often actors who succeed in exerting a greater

extent of influence are those who occupy powerful positions within the socio-

economic and political institutional fields of the decision-making arena. (Krasner,

1995). Another important aspect is that the relatively less powerful actors do not

concede easily to the influences of the more powerful actors; they respond to these

influences and attempt to negotiate terms with other actors. It is interesting to

contemplate on the reasons that lead certain communications to facilitate a desired

change in policy in certain cases, but not in others. The different levels of social

significance attached to different actors involved in the decision-making process

could be cited as one of the reasons why all the actors do not enjoy the same level

of power (Covaleski, Dirsmith & Rittenberg, 2003; Caramanis, 1996). In the

standard-setting context of several countries, actors wielding greater power, such

as corporate lobbyists, not only voice their opinions but are also successful in

Resource Dependency Actors from

Domestic

Institutional

Fields

Power (Im)balance

Decision-Making

Process for IFRS

Convergence Led

by Key/Official

Decision-Maker

Resource Dependency Actors from

Power (Im)balance Transnational

Institutional

Fields

12

getting their views translated into action (Georgiou, 2004). Since accounting

regulation in the national context has often been observed to undergo a group

decision-making process and has also been stated to have political and social

characteristics (Ding et al, 2007; Fearnley & Hines, 2003), it becomes necessary to

study the power perspective to gain a clear understanding of the decision-making

process of national standard-setting and the rationale that drives the same.

Thus the accounting regulatory sphere within the national decision-making context

involves significant power plays across multiple institutional fields at both the

national and transnational level, which strongly influences the actual

implementation process (Mantzari et al, 2017).

4. Research Methods

Empirical evidence for this study was collected through interviews and analysis of

archival data pertaining to a period of 8 years from 2005-2014. Significant

information was gathered from discussions with 25 key actors involved in the

decision-making process through interviews. Target groups and accessibility were

the two main criteria that were used to finalise the list of interviewees.

The process of data collection commenced with the mapping of key actors involved

in the decision-making process. Identification of these actors was based on

information gathered from personal contacts and secondary sources. Three

members from industry who were also involved in public-private projects were

personal contacts of the researcher. Being a part of public-private projects gave

them access to senior government officials. At first, the researcher contacted these

three members of industry via telephone and e-mails. Information provided by these

contacts in addition to review of information available from online documentary

sources such as reports of government organisations and professional bodies helped

the researcher to further identify target groups. These target groups included

members of professional bodies, IFIs and members of the core decision-making

team for convergence led by the state. Contact with target interviewees was

established through introductions provided by the first three interviewees.

In conducting semi-structured interviews, the researcher prepared an interview

guide based on a list of themes identified from extensive literature review and

theoretical concepts such as institutional fields, transnational and local actors, types

of resources and policy networks. The interview guide included questions that were

drawn from these themes and secondary data collected as part of background study

for interviews; though some questions were reordered or skipped as deemed

appropriate in the given interview context (Saunders, Thornhill & Lewis, 2012).

Open-ended questions were drafted so as to encourage varying levels and ranges of

responses from the interviewees (Gillham, 2005). These questions were designed

to draw out the experiences and stories in the interviewee’s own words, at his/her

own speed and order (McCracken, 1988). However, ‘planned prompts’ were used

in cases where the interview appeared to get stalled on a single issue or when the

information being provided by interviewees was beyond the scope of this study.

These interviews facilitated the discovery of sufficient details of the interviewee’s

story within a reasonable timeframe.

13

Interviews conducted were mainly face-to-face but some interviews were

conducted over telephone and Skype. Permission to record interviews was sought

and all except senior government officials agreed to this request. Senior government

officials cited regulations as the reason for not permitting to record the interviews.

Data collected during discussions with these officials were manually transcribed

soon after the interviews.

A total of 6 interviews were conducted during the first round of interviews in July

2012. These included interviews with members of the ICAI and industrial

associations. The second round of interviews in April 2013 included discussions

with 10 actors directly or indirectly with the decision-making process. All except

one of these interviews were conducted with members of the government including

4 representatives of the Ministry of Corporate Affairs (MCA) and 5 representatives

of the Ministry of Finance (MoF). Several of these interviewees were re-contacted

via telephone in May 2014 to corroborate information collected from documentary

evidence as well as for new updates in the decision-making process. This also

helped to bridge gaps that came up during analysis of data collected from the first

and second rounds of interviews. The interviews used in this study as sources of

information came from a cross-section of key actors of the decision-making arena

occupying senior roles in the hierarchy of the organisations they represented. Table

1 presents a brief introduction to the participatory roles of interviewees as well as

codes used to identify the interviewees.

Table 1 Identification/ Participatory Details of Interviewees

The length of interviews and codes assigned to interviewees are provided in the

appendix.

4.1 Documentary Analysis

A wide variety of documents were used to collect information as also to substantiate

data gathered from interviews as shown in Table 2. A classification of the types and

numbers of documents used in this study are presented in Appendix 2.

14

Table 2 Documentary Analysis

15

A detailed comparative review of the various documentary sources discussed in

Table 2 to confirm the accuracy of timelines for construction of events. For

example, details regarding an event on convergence decision-making process

published in newspapers were corroborated by collecting and reviewing

documents obtained from the websites of actors/institutions mentioned in the

newspaper. This information was further validated by interviewing concerned

members of the said institution or organisation. Extensive documentary analysis

had supplemented information gathered through interviews and in several cases

documentary evidence was the main source of information in this study.

4.2 Data Analysis

The data collected was analysed and interpreted to examine the influence of trade

and economic alliances on India’s decision to converge with IFRS. The decision-

making process was studied through an analysis of key events or milestones that

occurred in India regarding IFRS convergence. The events were then streamlined

on a timeline to enable a greater understanding of the sequence of events and the

impact that these events had on the decision. Codes derived from the theoretical

framework and review of literature were used to analyse and interpret these events.

These codes were allotted to the four aspects listed in Table 35.

5 Please see below

16

Table 3 Data Analysis Structure

17

5. Findings

5.1 Institutional Fields of Transnational Influences

The decision-making process of IFRS convergence in India was triggered way back

in 2000 through indirect and ‘soft’ influences exerted on the state by actors from

different transnational institutional fields such as the United Nations Conference on

Trade and Development (UNCTAD) and International Organisation of Securities

Commission (IOSCO) Sydney Resolution (UNCTAD X, Conference Proceedings,

2000). In 2001, India volunteered to participate in the Financial Sector Assessment

Programme (FSAP) jointly conducted by the IMF and WB to assess the stability

and resilience of financial systems in member countries (MOF Report, 2013). All

these forums promoted IFRS convergence.

Institutions such as the WB and IMF may be viewed as actors of developmental

institutional fields at the transnational level. They interact with state and non-state

actors embedded in political, economic and developmental institutional fields at the

national level, working in public and private sectors as part of developmental

projects. However, in the context of this study, the influence of such interactions

extended into the accounting regulatory institutional fields and was not restricted

to developmental institutional fields.

In response to such influences, the Government of India (GOI) in 2001 established

the National Advisory Committee on Accounting Standards (NACAS) constituted

of members from regulatory authorities, professional bodies and industrial

associations. NACAS was also used as a platform to engage with expert opinions

of all stakeholders since the accounting standards were now being framed in

alignment with IFRS (ICAI Concept Paper, 2007). This is theoretically interpreted

as change in the political/state institutional field at the national level in response to

flow of influences from different trade and economic institutional fields at the

transnational level. A government representative stated,

“Government was now beginning to get serious….. we didn’t want to be left

behind in the international scenario… we wanted our own experts to first

validate these standards…and this was to some extent, the result of the

gradually changing global scenario…” (MCA 3).

All these interactions with actors from transnational institutional fields may be

interpreted as having a normative influence on the government’s decision to

constitute the NACAS. It must be noted, however, that the influence of these

institutions was not coercive. A WB representative stated,

“ We are not in any way pressurising India to adopt IFRS….the process (for convergence) seems to have been initiated in an attempt to follow

global trends” (WB1).

This view of the WB was also corroborated by members of the MCA and ICAI. Such

interactions of the state operating from a domestic institutional field with global actors

embedded in transnational institutional fields could be explained through normative and

mimetic forces of institutionalism. The absence of coercive influences were expressly stated by

interviewees. One representative of the MCA said,

18

“….all these international institutions accepted Indian GAAP at the time

…they encouraged us to use IFRS …but were not in a position to force

us” (MCA2).

To some extent, this was validated by documentary evidence on, for example,

reduction in the financial resource reliance of India on institutions such as the WB

and IMF (World Bank Report, 2017). The diminished influence of IFIs was noted

by a representative of the MCA,

Institutions like the WB and IMF had significant influence in the pre-

liberalisation phase in India. The growth of industry and the country’s

increasing economic and political power in the Indian sub-continent resulted

in a steady decrease of the influence of these institutions (MCA 3).

The delays in the decision-making process also indicated that the state was in a

position to resist global pressures to converge.

A trade and economic alliance that played a part in adding momentum to the

decision-making process was India’s trade relations with the EU. The EU is India’s

largest trading partner6 as well as the largest source of its foreign direct investment

(European Commission Report, 2017). The EU’s mandatory adoption of IFRS in

2005 followed by European Securities and Market Authority’s (ESMA)

communications with the state, Indian regulatory authorities and the ICAI led to the

setting of 2011 as the deadline of IFRS convergence for Indian companies listed on

EU stock exchanges7. This deadline triggered India’s preparations for a formal

announcement of convergence. The formal announcement for IFRS convergence by

2011 was made by the ICAI in 2007, and officially notified by the state in 2008

(MCA Press Note, 2008). These initial phases of the decision-making process

witnessed the flow of both direct and indirect institutional influences from

transnational institutional fields. For example, while EU’s mandatory adoption of

IFRS was an indirect source of influence, ESMA’s communications with the state

and the ICAI were direct sources of influence. This could be interpreted as India

being influenced by the convergence decision of a group of nation-states which is a

significant trade partner and source of financial resources. The concurrence of the

deadline set by the ESMA and the state adds impetus to this inference. This instance

indicates that resource dependency relations between national and transnational

institutional fields in the form of economic and trade alliances play a significant role

in driving the decision-making process for convergence. The proceedings of the

decision-making arena further demonstrate that the sources of such influences are

not static and that they evolve with changing power dynamics not solely defined by

financial resource dependency but also regional alliances between nation-states.

6 Trade with EU constitutes 13.5% of India’s overall trade with the world in 2015-16 making EU

its largest trading partner. This constitutes 2.2% of EU’s overall trade with the world and ranks

India as its 9th largest trading partner. EU exports to India increased from € 21.3 billion in 2005 to € 37.8 billion in 2016 (EC, 2017).

7 During the period of 2003-2012, Indian companies have invested $56 billion in Europe. During

this time-period Indian companies financed 511 Greenfield projects and acquired interests in 411

companies. UK, Germany, Netherlands and Belgium are the four main countries attracting Indian

corporate investors. UK attracts the major share of investments with approx. 43%

of Indian corporate investments ($ 24 billion) followed by Germany ($ 6.9 billion). Major acquisitions include Tata Motors $ 2.3 billion purchase of Jaguar and Land Rover and Tata Steel’s $13.3 billion

acquisition of Anglo-Dutch steel maker Corus (EICC Report, 2012).

19

In August 2009, the MCA set up a high powered group to discuss and resolve

challenges faced in the IFRS convergence project (MCA Press Note, 2009). This

‘Core Group’ was constituted of members of different stakeholder groups and was

headed by the then Secretary of MCA. Some other significant transnational

institutional fields that propelled the decision-making process were the US GAAP-

IFRS convergence project led by Financial Accounting Standards Board (FASB)

and IASB, the SEC’ permission to file IFRS compliant statements and the G-20

summit held in Pittsburgh in September 2009 as well as official convergence

deadlines announced by countries such as Canada and China (ICAI Concept Paper,

2007; MCA Press Note, 2010).

So while India was not under coercion from transnational organisations, through its

membership in various transnational institutional fields, it was in effect under

indirect pressure to make a commitment towards full IFRS convergence.

5.2 Resource Dependencies between Transnational Institutional Fields: India-

Japan IFRS dialogue as a channel of impact of US delays

The year 2010 also saw the inflow of influences from regional institutional fields

of countries such as Japan into the decision-making arena of IFRS convergence in

India. In 2010, a Joint Working Group consisting of members of the Core Group

from India and the IFRS council of Japan was constituted, in addition to forming

subgroups for joint training programmes and also for jointly representing issues to

IASB (MCA Press Note, 2010). A member of the core group corroborated this

information,

“We (the government) are conducting joint sessions with the government

of Japan….people from (professional) accounting bodies and some other

regulatory authorities are also involved from both sides…” (CG5).

Though both delegations were led by the state, actors from different institutional fields

of both countries such as regulatory fields, industry and accounting profession were

involved in the process. The Core group from India, led by the secretary of MCA was

constituted of representatives from state bodies such as MoF and the Comptroller and

Auditor General’s (CAG) office, regulatory authorities such as the Securities and

Exchange Board of India (SEBI), the Reserve Bank of India (RBI), National Stock

Exchange of India Ltd (NSE) and pension and insurance regulators and professional

bodies such as ICAI (MCA Press Note, 2010). However, the IFRS Council of Japan,

in addition to these representatives, included representatives from the Japan Business

Federation (JBF). India appears to have excluded members from industrial associations

such as FICCI and CII while Japan included them for this dialogue. Although, a

member from the Core group emphasised that the views of the industry had been taken

into consideration.

“We had received several comment letters from industry regarding their

views and issues about convergence …we had taken those issues into

consideration during discussions”

This relationship is likely to be significant because Japan is currently India’s 3rd

largest source of foreign direct investment. Also India is the largest recipient of

20

Official Development Assistance (ODA) from Japan. Hence Japan has been

providing financial assistance to India for infrastructure development projects such

as the Delhi Metro Rail Project (DMRC Report, 2014). Discussing the significance

of India’s ties with Japan, a member of the MCA stated,

“We have a longstanding and strong relationship with Japan…..not just

on issues of convergence…more important spheres of trade, technology and

economic relations” (MCA 3).

In this case, the state and industry both included actors operating in trade and

economic institutional fields in different capacities. For example, institutional state

actors as well as private sector industry representatives such as the MCA were

involved in maintaining decades of trading and donor-recipient relations with state

actors of Japan through projects such as DMRC (DMRC Report, 2014). These

actors belonging to different institutional fields bring with them different priorities

and ideas. Thus the India-Japan IFRS dialogue is a clear example of state driven

networks between transnational institutional fields that influenced the decision-

making process in India.

However, the impact of this network was different from that of other transnational

influences. Influences from all transnational institutional fields so far had most

definitely been in favour of immediate IFRS convergence (MCA Press Note, 2009).

Although there was no official evidence to prove this at the time, a senior member

of the MCA revealed that the Japanese delegation was not very keen on immediate

convergence,

“… their opinions were slightly different from ours…they suggested

2017 for convergence which at the time we thought was quite late…. they

were not in favour of immediate convergence” (MCA1).

The reason suggested for this unofficial stance of Japan, by the MCA representative

was the delay in US’s decision for IFRS convergence. While the formal position of

the Japanese delegation had been to engage in resolving convergence issues the

informal, and it would seem, its genuine position has been to delay convergence in

response to US delays:

During the formal meetings we had, the official policy of both sides focussed

on immediate convergence …we realised during informal discussions at

dinners and social events that they were not very keen on immediate convergence (MCA 1).

Since US and Japan were significant trade partners (Business Accounting Council

Report, 2013), the latter was in no hurry to go ahead with convergence in a situation

where the US had not yet made a final decision.

This information provided by the interviewee was validated by some key events

that marked the decision-making process for convergence in Japan. In 2009, a key

standard-setting body of Japan, the Business Accounting Council (BAC), issued a

report that allowed voluntary adoption of IFRS by listed companies starting in

March 2010. The report also stated that the decision for mandatory adoption would

be finalised by the end of 2012 (BAC Report, 2009). In June 2011, however, the

21

Minister of the Financial Services Authority (FSA) made an announcement of

indefinitely postponing the decision on mandatory IFRS adoption citing reasons

such as the Securities and Exchange Commission’s (SEC) postponement of IFRS

adoption in US, representations from Japanese industrial and trade union lobbies to

postpone convergence, divergent factors in Japan’s economic and legal institutional

fields and finally natural disasters such as Tsunami that had hit the country

(Tsunogaya, 2016).

Tsunogaya (2016, pp. 831) notes the significance of the influence of US delays on

BAC stating that,

“The BAC’s policies have been largely influenced by the US-SEC

decisions, which postponed the adoption of IFRS in the USA (see

Securities and Exchange Commission. Uncertainty remains about

whether or not the USA will ultimately mandate adoption of IFRS”.

The author further states that the decision to postpone mandatory IFRS adoption in

Japan was despite pressures on the BAC from the IFRS Foundation to speed up

adoption as well as make financial contributions in order to maintain their position

as a member of the monitoring board of IFRS Foundation. On the other hand, the

study states that it is such pressure from the IFRS Foundations that “allowed” the

BAC to announce voluntary adoption of IFRS in the country. This suggests that the

BAC was trying to maintain a power balance between demands of actors from and

global institutional fields while making decisions towards IFRS convergence.

Such evidence from the Japanese decision-making arena demonstrates the wider

applicability of the debates and discussions constituting the decision-making

process in India. First of all, it suggests that influences from transnational

institutional fields could also have been partly responsible for delaying or

supporting those who wanted to delay the IFRS convergence process, not only in

India but also in other countries going through similar decision-making processes.

Secondly, the actions of the BAC, a key decision-maker in the Japanese

convergence process when analysed through the lens of resource dependency

dynamics used in this study, reflects the power balancing acts employed by the state

as a key decision-maker for convergence in India. Thirdly it represents the flow of

influences between decision-making arenas of different nation states. This point is

elucidated through further discussion of the ideas that were transferred and

exchanged between these arenas through resource dependency relations.

A common and key feature that formed a part of the resource dependency dynamics

in the decision-making processes for convergence in both India and Japan is the

significant impact of US’s decision to delay convergence. In seeking to understand

whether Japan’s stance to delay convergence had an influence on India’s decision,

this study relied on information provided by interviewees who were senior

government officials directly participating in the decision-making process. For

example, one interviewee stated off the record,

Of course we have given this (Japan’s preference to delay convergence)

significant consideration ....it also contributed to our decision-making process….

the reason we’re conducting these joint IFRS dialogues is so that we can share

ideas and strategies on the IFRS convergence decision (MCA 2).

22

A senior member of the ICAI also concurred stating that,

Yes of course, we do refer to convergence processes in other

countries…although this may not always be stated in official statements

issued…in the case of Japan, the very purpose of holding these joint meetings is

to collaborate to formulate strategies of IFRS convergence (PB 5).

The information provided by the interviewee was validated by actual delays that

continued to occur in the decision-making process.

In addition to this, US was indicated as one of the sources of reference in the initial

stages of the decision-making process. For example, the ICAI in its concept paper

states that,

Financial Accounting Standards Board (FASB) of USA and IASB are also

working towards the convergence of the US GAAPs and the IFRSs. The

Securities & Exchange Commission (SEC) has mooted a proposal to permit

filing of IFRS-compliant financial statements without requiring presentation of

a reconciliation statement between US GAAPs and IFRSs in near future. In this

scenario, India being an important emerging economy in the World, is yet to

adopt the IFRSs (ICAI Concept Paper, 2007).

Subsequently the delays in the IFRS convergence decision in India

coincided with delays in the convergence decision in the US. Also, the

Indian decision-making arena had a small segment of actors who

independently and informally followed the US decision-making process

and were convinced that the best strategy would be to wait till the US

makes a decision on convergence. These opinions, however, were

unofficial and informal. For example, an interviewee from the

government stated,

“If IFRS is so good, why isn’t the US adopting it? It’s been so many years …I

am an accountant myself and my personal opinion is that US GAAP is much

better and unambiguous in comparison to IFRS and that’s the reason why US has not adopted IFRS… let us wait to see what the US does ...although we are

not officially obliged to follow the US” (MCA 2).

The diffusion of influences across multiple transnational and national institutional

fields to give shape to convergence decisions is clearly demonstrated through such

evidence. Such actors included representatives of the state, professional bodies and

industry. Some of the reasons and rationales presented by these actors and their

influences on the decision-making process are discussed below.

Significance of US Delays on the Decision-Making Process in India

Dependence on the US economy has been quoted by a few members of the Indian

industry and the MCA as a reason for India’s reluctance to go ahead with the

convergence process. According to one individual member of the industry,

23

“…a significant percentage of Indian economy is dependent on US

economy in terms of fund raising or customisation etc. maximum amount

of private equity and FDI is received from the US economy via Mauritius

or Cyprus route but the original source is the US economy” (IB 4).

Further explaining the situation, the interviewee states that India would not like a

situation where it had implemented IFRS and the US did not converge with IFRS.

Noting that US GAAP is very investor friendly, the interviewee also stated that,

“All big 50 companies in India are following US GAAP…they are

preparing a second set of financial statements…” (IB 4).

Two different views of MCA representatives on this issue were interpreted from

interviews. According to one view, there are several others also within the

government sphere who hold his point of view that US GAAP is far more advanced

and unambiguous in comparison to IFRS.

“Many people in the government also have the view that US GAAP is

better...it is advanced and unambiguous unlike IFRS which is

complicated and most people do not understand IFRS here…if IFRS is so

advanced and efficient, then why is the US delaying convergence…”

(MCA3).

Another view of MCA representatives on direct or indirect influences from US is

outright denial of any such influence. For example, one representative of the MCA

stated,

We are not obliged to follow Japan or US…as the government of India we

make independent decisions....we are not influenced by industry either…we

take their views into consideration but they cannot influence us (MCA3).

However, interviewees from industry and professional accounting bodies did

acknowledge that India is indeed influenced by decisions of significant and

economically powerful trading partners. One member of industry stated,

The government would always claim to be entirely independent of any

influences …however, it is impossible to believe such a thing in this era…no

country makes decisions in isolation…for example, why doesn’t Indian

government hold convergence talks with Bhutan? Why Japan...Japan is more

important to us in terms of trade etc. (IB5)

Hence, IFRS dialogues with Japan was a channel that conveyed indirect influences

of US delays into India. For example, the SEC’s delay in decision- making was

identified as a key factor in Japan’s decision to delay adopting IFRS and, by

extension, it also impacted India’s decision to delay convergence. This sequence of

events can be interpreted as shown in Figure 2 as an instance where influence flows

from the transnational to the regional and then to the local decision-making arena.

24

The arrows passing through the three regions indicate the flow of institutional influences from

the US through Japan to the Indian decision-making arena for IFRS convergence. In addition, the

flow of institutional influences between regulatory institutional fields in the US and India could

also be interpreted as two- way. At a national conference of the American Institute of CPAs

(AICPA) in 2010, while discussing the US approach to integrating IFRS with US GAAP, SEC’s

Deputy Chief Accountant, Paul Beswick stated,

To give you an example, India is set to move to IFRS in 2011. However, they

describe their approach as a convergence approach to IFRS and have indicated

that they may not fully adopt IFRS if they believe an exception is warranted…

the majority of jurisdictions are either following a convergence or endorsement approach. If the US were to move to IFRS, I will call it a ‘condorsement’

approach. (Whitehouse, 2011)

This statement demonstrates how the decision of the US on IFRS convergence was being informed

by the experience of convergence projects in other countries, including India. Such examples of

transnational references in the context of national decision-making of different countries further

emphasises the exchange of influences between global, regional and local institutional fields.

25

The evidence from the India-Japan IFRS dialogue and the opinions of government representatives

quoted above suggest that delays in the IFRS convergence decision-making process in the US have

influenced the decision-making process in India in a dual manner. Firstly, through dependence of

domestic institutional fields on trade and economic institutional fields in Japan and secondly

through the alliance of institutional fields within the Indian and US economies. In both contexts,

the US acts as a significant source of indirect and direct influence. Analysing the nature of the

relationships between these institutional fields indicates that exchange of resources is an important

aspect defining the relationship and hence acting as the cause of flow of influence. The

relationships between the actors and their medium of influences will be discussed in detail in the

next section. Hence these were some influences from the transnational institutional sphere that

indirectly provided support to the rising local resistance to the convergence process in India.

5.3 Resource Dependencies between National and Transnational

Institutional Fields: Role of State as the Key Decision-Maker

Since the state is the key official decision-maker in the convergence decision, a brief analysis of

the nature of relationships between the state and few main actors in the decision-making arena is

presented below:

26

Figure 3 shows the resource dependencies between transnational and local

institutional fields of the network that drove the convergence decision-making

process in India, focusing on the state as the official decision-maker.

While discussing the state’s resource exchange relations with industry,

interviewees stated that corporates provide political support to the ruling party as

well as other political parties. As a member from industry stated,

Of course, there are links between government and industry…..our industry

is powerful now unlike pre-liberalisation era when government could dictate

everything…corporates provide large amounts of funds for election

campaigns….and they certainly don’t do that for charity… (IB4).

27

As shown in Figure 2, the Indian government has resource exchange relationships

with professional bodies, industrial lobbies and the Japanese delegation and it holds

a resource dependency relationship with IFIs in the decision-making arena. In each

case the resources are different. In the first case, the government provides

legitimacy and authority to the ICAI and the ICAI provides technical support and

knowledge regarding standard-setting. The ICAI, although autonomous to a great

extent, still exists under the supervision of the central government. The standards

issued by the ICAI become mandatory only when authorised and announced by the

government. In 1999 the GOI constituted the NACAS, an advisory body on

accounting standards under the Companies (Amendment) Act 1999 (Das and

Pramanik, 2009; MCA Press Note, 2009). NACAS is also composed of members

from professional bodies such as the ICAI. The ICAI’s resistance to full adoption

of IFRS due to legal and economic factors in India is also interpreted to be an

internal institutional response that acted as a significant channel of technical and

regulatory resistance at the local level. Between the government and IFIs, there

exists a clear case of resource dependency – both financial and technical. The State

Financial Accountability Assessment (SFAA) reports prepared by the WB and

addressed to various provincial governments could be cited as an example of inflow

of technical resource from IFIs (SFAA Report 2004; World Bank Report, 2004;

World Bank Report, 2017).

However, as illustrated in figure 2, the resource dependency relations of the state

with other actors from both local and transnational regional institutional fields tone

down or dilute the intensity of IFI’s influence over the decision-making process.

6. Discussion

This study has found that India’s move towards convergence involved power-

balancing flows of significant influences from actors embedded in multiple

institutional fields in the decision-making arena rather than being solely influenced

by IFI’s, as was observed in the convergence process of Bangladesh (Mir &

Rahman, 2005).

The India-Japan IFRS dialogue was an important transnational network in the

decision-making process for India. This transnational influence was different from

others as it supported resistance to immediate convergence at the local level due to

Japan’s unofficial stance to delay convergence. Nevertheless, despite this

preference for delay being well known to India, or possibly because of it, the official

Indian view was that Indo-Japan dialogue was perceived as being an effort to speed

up the convergence decision. The political institutional fields of Indian and Japan

could also be viewed as having a resource exchange/dependency relationship

because of the ODA recipient status of India with Japan. The India- Japan IFRS

dialogue can be viewed as a forum of technical knowledge sharing. In addition to

the donor-recipient relations between Japan and India, significant trade relations

between Japan and US and the international operations of major Indian industries

also acted as sources of influence; as also did the SEC’s decision to delay IFRS

convergence. The outcome of these influences was that, as discussed earlier, all

major Indian companies have been preparing financial reports according to US

GAAP, in addition to the reports based on the previous Indian accounting standards.

28

Figures 2 and 3 presented in Section 5 show that the flow of institutional influence

is determined by subtle power dynamics that are balanced on the resource

dependence or exchange relations between actors in the decision-making arena.

There is a power imbalance amongst actors in the arena that results in the flow of

influence (Rodrigues & Craig, 2007). The theoretical constructs of power

imbalance arising due to resources such as knowledge (Rodrigues & Craig, 2007)

and mutual dependence (Casciaro & Piskorski, 2005) lead to the inference that

power imbalance in this context is determined by the mutual dependence of actors.

Mutual dependence in the convergence decision translates into resource exchanges

and resource dependence between global, regional and national actors.

The type and nature of dependence or exchange of resources in an institutional field

could place one actor in a relatively more powerful position than the other

(Rodrigues & Craig, 2007; Chua & Taylor, 2008). For instance, the power balance

between the state on one hand and on the other hand actors such as industries and

Japan seems to be heavily tilted towards the latter due to substantial resource

dependence relationship with both Japan and industries. However, it should be

noted that while Japan has been quite forthright in citing US delays as one of the

factors influencing the Japanese convergence decision, the official stance of the

Indian government has been to insist that the convergence decision is independent

of such influences. These findings demonstrate the manner in which socio-political

and economic factors play a role in convergence decisions (Chua & Taylor, 2008).

Despite claims of independent decision-making by the state, the power equation

between the political and economic institutional fields within the country

(Rodrigues & Craig, 2007; Chua & Taylor, 2008), for example, could be inferred

from newspaper articles on heavy funding of political campaigns by powerful

corporate houses. This was also demonstrated by the change in the stance of the

state over time. While the state was initially keen to go ahead with convergence

ideas initiated by IFIs and other global forums, the entry of industry and Japanese

delegation into the decision-making arena as well as ICAI’s resistance to certain

IFRS due to legal and economic conditions in India, seemed to have altered the

stance of the state. Influences from the trade and economic institutional fields of

the US that managed to permeate into the decision-making processes through

indirect mediums partly contributed to the repeated delays in the convergence

process.

Analysing these relationships in terms of resource dependencies/ exchanges

between national and transnational institutional fields provides a better explanation

for the power dynamics observed in the global policy networks that constitute the

decision-making arena. The resource exchanges and dependencies presented in

Figure 2 could be interpreted as the sources that provide an influential position to

certain actors and place others in a position to be influenced.

7. Conclusion

Extant literature on global accounting convergence rarely examines the decision-

making process for accounting standards convergence as being influenced by

traditional cross-country economic relationships. This study contributes to the

literature by emphasising the importance of nation states in the transnational

accounting regulation arena by portraying the decision making process as being

29

significantly influenced by the convergence decisions made by other nation states

which are traditional economic and trade partners. Different types of resource

dependency relations between the actors embedded in multiple institutional fields

of the transnational policy network driving the decision-making process play a key

role in shaping the decision-making process. An example of such key influences on

the decision -making in India was the impact of US delays on the decision to

converge with IFRS. This demonstrates that while powerful transnational

organisations actively promote convergence, nation states play a key role in

counter-balancing the effects of such promotion. This is achieved by exchange of

influences through traditional trade and economic ties between nation states as well

as successfully countering pressure from transnational bodies promoting full

convergence. Local resistance to such pressure was channelled through industrial

lobbying as well as ICAI’s stance on the need to create carve- outs for certain IFRS

to suit the legal and economic environment in the country. India’s ties with other

nation states such as US and Japan on the convergence decision-making process

highlights the significant roles of cross-governmental relationships within the

global accounting regulation arena and also questions the portrayal of transnational

organisations as unchallenged powers in such regulatory spaces.

This study provides an analytical framework that could be adapted to investigate

the convergence decision-making process of other countries. It identifies the flow

of transnational and national influences in the context of resource dependencies

and ensuing power imbalances between actors in the decision-making arena. The

framework facilitates the narration of the convergence decision as a story that

rationalises the links between global and local actors that actually drive the

decision-making process. Analysing the resource dependency/ exchange

relations through trade and economic alliances between these actors help to

understand underlying power imbalances. This demonstrates that power

equations between actors significantly shape the decision-making process. It

helps to present the evidence for the initiation and growth of the decision-making

process as constituted of meaningful and logically consequential

communications and developments rather than isolated and random events. In

this context the study provides an analytical platform which could facilitate

further investigation of convergence as a process.

The study makes the following contributions to accounting policy, practice and

academia. Firstly, it provides insights into the deliberations and negotiations

between state and non-state policy makers at both transnational and national

levels. It demonstrates why and how accounting policy choices are determined by

key policy-makers, specifically focusing on the significance of geo-political

alliances in driving such decisions in the context of a developing country. The

findings of the study contribute to literature that challenges the notion of a

‘harmonised’ set of accounting standards leading to convergence of accounting

practices by unraveling the disparities in rhetoric and reasons for convergence

provided by key decision-makers. Secondly, it illustrates the evolution of

national accounting practices in a country driven by efforts to converge national

accounting standards with IFRS. It traces institutional influences of legislative,

economic and geo-political dynamics on national accounting practices and

demonstrates how such influences shape decisions that determine accounting

practices in a developing country.

30

Finally, the study makes a significant contribution to extant literature by delving

deep into the decision-making process for convergence specifically focusing on

the role of transnational trade and economic alliances between nation-states vis-

à-vis the role of powerful transnational organisations such as IFIs which are

traditionally perceived as all pervasive powerful influencers in accounting

convergence decisions. The study also questions the plausibility of achieving

accounting standards ‘harmonization’, let alone harmonization of accounting

practices, as intended by the IASB given the diverse agendas of decision-makers

operating from multiple institutional fields.

In terms of future scope for research, investigating convergence with international

accounting standards as an extension and consequence of the decision-making

process would provide a fuller and more comprehensive picture of the

convergence process. The findings of studies that examine the hurdles to

implementation and compliance issues could be further investigated in the light

of the events that took place before the decision was made and as a continuation

of those events. It would be interesting and informative to explore the networks

and people involved at the post implementation stage and the manner in which

their presence or absence plays a role in the development and execution of the

implementation process.

31

APPENDIX 1 – INTERVIEW DETAILS

* Core Group (CG) – group constituted of key national decision-makers

* Ministry of Corporate Affairs – MCA

* Ministry of Finance – MoF

* Professional Body – PB – Members of Accounting Body

*Industrial Body – Members of Industrial associations and corporate entities.

*World Bank – WB

Interviewee

Code

Position Type of

interview

Location Date Length of

Interviews

1. CG 1 Member of

Core Group*

Face to face &

Telephone

New

Delhi

April

2013

1 hour 25

minutes

2.CG 2 Member of Core Group

Face to face New Delhi

April 2013

1 hour

3.CG 3 Member of Core Group

Face to face New Delhi

April 2013

1 hour 10 minutes

4.CG4 Member of

Core Group

Face to face

& Telephone

New

Delhi

May

2014

1 hour

5.CG5 Member of Core Group

Face to face New Delhi

April 2013

1 hour 30 minutes

6.MCA1 Member of MCA

Face to face New Delhi

April 2013

50 minutes

7.MCA2 Member of

MCA

Face to face &

Telephone

New

Delhi

April

2013

1 hour

8.MCA3 Member of MCA

Face to face New Delhi

April 2013

1 hour

9.MOF1 Member of MOF

Face to face New Delhi

April 2013

55 minutes

10.MOF2 Member of MOF

Face to face New Delhi

April 2013

50 minutes

11.MOF3 Member of MOF

Face to face New Delhi

April 2013

45 minutes

12.PB1 Accounting

body

Member

Face to face New

Delhi

July

2012

1 hour 30

minutes

13.PB2 Accounting

body

Member

Face to face New

Delhi

July

2012

1 hour 20

minutes

14.PB3 Accounting Face to face Tamil July 1 hour 30

32

body Member

& Skype Nadu 2012 minutes

15.PB4 Accounting

body Member

Face to face New

Delhi

2 hours

16.PB5 Accounting

body

Member

Face to face

Skype

New

Delhi

July

2012,

May

2014,

May

2015

3 hours 30

minutes

17.PB6 Accounting

body

Member

Telephone New

Delhi

1 hour

18.PB7 Accounting

body

Member

Telephone Kerala,

India

May

2012

2 hours

19.PB8 Accounting

body Member

Telephone New

Delhi

July

2012

1 hour

20.IB 1 Member of

Industrial

Association

Face to face New

Delhi

July

2012

2 hours

21.IB2 Member of

Industrial

Association

Face to face New

Delhi

April

2013

2 hours

22.IB 3 Member of

Industrial Group

Face to face New

Delhi

April

2013

1 hour

23.IB 4 Member of

Industrial

Group

Face to face New

Delhi

July

2012

1 hour 30

minutes

24.IB 5 Member of

Industrial

Group

Face to face

&

Telephone

New

Delhi

July

2012,

May

2013

2 hours 30

minutes

25. WB1 Member of WB

Telephone New Delhi

January 2013

1 hour

33

APPENDIX 2 – CLASSIFICATION OF DOCUMENTS ANALYSED

Documents Issued by Examples of Documents

Government

Reports, Press Releases, Press Notes, General Notifications

Professional Bodies

Reports, President’s Annual Message, Commentary letters, Exposure drafts, website material

Public practice

accountancy firms

Reports by KPMG, PWC, Deloitte

Regulatory Bodies

Reports by SEBI, ESMA, website materials

Professional and

Business Media

outlets

The Business Standard

The Hindu

The Business Line

34

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